Abstract
One of the primary motivations behind the establishment of noncontributory pension programs is to allow beneficiaries to retire from the labor force. Yet, as with other unconditional cash transfer schemes, their aggregate effects may be more complex. Using panel data and instrumental variable techniques, this paper shows that the effect of one such program, Colombia Mayor, has been to raise the labor force participation of relatively younger male beneficiaries. This increase occurred precisely in the occupations with characteristics that are likely to require some up-front investment. The paper concludes that the transfer effectively loosened the liquidity constraints to remaining in these occupations. However, no such effect is found among women or older beneficiaries.
Highlights
Direct cash transfers have become an increasingly popular policy tool to reduce poverty in low- and middle-income countries over the past two decades
The results strongly suggest that selection into treatment is important at the individual level, and it can not be safely assumed that other, unobserved characteristics could act as omitted variables
We show the results for our standard estimation on the binary outcome of whether a potential beneficiary receives any monetary transfers from other households or organizations such as nongovernmental organizations or churches
Summary
Direct cash transfers have become an increasingly popular policy tool to reduce poverty in low- and middle-income countries over the past two decades. In Bolsa Família, Ribas (2014) estimates that the share of entrepreneurs among men with low educational attainment who are beneficiaries has grown He questions the causal link between relieving financial constraints and the higher levels of investment because he observes a rise in private transfers among households. Martinez (2004), in an unpublished paper, finds that Bolivia’s Bonosol Program boosted food consumption among rural households by more than what could be purchased with the amount of the transfers He concludes that the additional funds are likely being used to invest in agricultural inputs. There might be evidence of less demand for formal labor among individuals receiving unconditional cash transfer benefits, Bosch and Campos-Vázquez (2010, 1) estimate that “had the program [Seguro Popular] not been in place, 31,000 more employers and 300,000 new formal jobs should have been registered with Mexican social security.”.
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